President to Rollout Jobs Package Next Month

–Given everything he’s been saying so far, he most likely starts out with a strong call to renew the payroll tax holiday and extend UI benefits.

–These are both essential—EPI estimates that to lose them next year would cost over one million jobs. But since they’re already in the system, they don’t add anything new, so it’s like keeping your foot where it is now on the accelerator. If they expire on schedule at years’ end, your foot comes off. But keeping them going only maintains current speed, such that it is.

–On the first point, the infrastructure bank, which I like very much, will take one-two years, I’d guess, before it starts creating jobs. On the second point, my experience with the Recovery Act (I’ve yet to see solid research on this, but I’ll bet I’m right) is that traditional infrastructure (e.g., roads and bridges) has gotten considerably more capital-intensive, and thus less labor intensive.

–The FAST! idea, which is getting some nice traction, meets both of these criteria, plus it has great optics—fixing schools in communities.

–Next, we could see the President to continue to push his clean energy agenda, which I think remains compelling on many levels. As he stressed from the advanced battery plant in MI last week, by targeting investment incentives toward industries in this space, we can help people move from contracting to potentially expanding industries.

–I like the 48c Clean Energy Manufacturing tax credit in this space—worked well during the Recovery Act incentivizing manufacturers not just to produce clean energy (e.g., using equipment from abroad) but to manufacture that equipment here in the US.

–Look for some more ideas on the tax credit/cut side. A new hires tax credit could help (meaning the employer only only gets the credit if they add to payroll) especially with smaller businesses. And if R’s are motivated to do anything in this space, it’s much more likely to be on the employER side than the employEE side.

–In fact, the endgame here could involve an expansion of the payroll tax holiday to the employer side (i.e., the current credit is 2% off of the employees’ 6.2% payroll tax—I could see something like this also applied to the employers’ side of the paycheck).

–I tend to think there’s more bang-for-buck on the workers’ side of the paycheck, just based on the family budget squeeze and the decline in real pay, but CBO scores the employer side as having a slightly larger multiplier (their model has the employer-side cut bleeding into lower prices, which boosts real growth, etc…I’m dubious, but maybe…).

–I suspect he won’t go there—the politics certainly make it a huge lift—but another round of state fiscal relief would really help. Over the past 12 months, we’ve seen the private sector adding jobs—1.8 million, in fact. That’s not nearly enough, but it’s movement in the right direction.

Cities and towns, meanwhile, have been shedding jobs—340,000 over the last 12 months. It’s because they still face budget gaps and they have to balance their budgets, so we’re going to keep seeing layoffs of teachers, police, sanitation workers, firefighters, etc.

While I don’t think POTUS will call for Recovery Act-style state fiscal aid, perhaps he can suggest specific ways to help preserve jobs in these areas, like the 2010 Education Jobs and Medicaid Assistance Act.

–I know…this all sounds pretty academic. House Rs will likely block most of the above, though I’d give the payroll credit extension a greater than 50% chance. But if the President constructs his jobs agenda on the basis of what the Rs will accept, we’re all toast.

So I look forward to a solid rollout next month followed by a defining fight. If things come down the way I think they will, let’s make sure everyone in this country knows exactly who’s standing between the 20+ million un- and underemployed Americans, and their jobs, paychecks, and living standards.

16 comments in reply to "President to Rollout Jobs Package Next Month"

In addition to again extending UI benefits, how about increasing those benefits? Republicans of course will scream that this will provide even more incentive for not working. A response could be to make the increase kick in after some number of weeks of unemployment.

For the new hires tax credit, how about a bonus for each person hired who has been out of work (for any reason) for at least six months? This would counteract the recent disturbing trend for employers to refuse to even accept resumes from those who are currently unemployed. It will also particularly help those groups with the highest unemployment rates, such as the young, blacks, and Latinos.

If I’m reading you correctly, the odds are that at best we avoid fiscal drag from contraction and, if we’re really lucky, get some minor fiscal uplift. Am I being too negative?

From news reports, he’ll also push for “entitlement reform” which means cutting Social Security, Medicare and Medicaid. This would be contractionary, worsen inequality, leave most people worse off, decrease workers confidence and bargaining power, be against the wishes of at least two-thirds of the population and generally be a terrible idea.

Yep, looks like entitlement cuts. From some reporters on the twitter machine

Pres Obama also tells @CBSSunday, he’ll be putting forward a deficit plan “similar” to the one he put forward to Speaker Boehner last month.

Obama: “We’re gonna have to make some modifications to Medicare and Medicaid.” Don’t have to be radical, but to preserve programs.

If memory serves, he proposed chained CPI formula for Social Security and raising Medicare eligibility age. The first is a benefits cut, with estimates rising up about 10% for the oldest. The second is a disaster, given the difficulty a 65 year old would have getting private insurance, the cost, many would delay care, some estimates that it would not save much given delayed care, more Medicaid, etc.

Any such change would be regressive, hitting those who can least afford it the hardest, with savings effectively supporting lower taxes on those who can most afford it.

But this is not an uncommon mistake; even Narayana Kocherlakota, one of the dissenters on the Fed’s statement about future interest rate expectations, assumed in his modeling of unemployment that prices and the shape of the demand curve have no effect on unemployment. This assumption is at the base of claims that unemployment can fix itself without government intervention if people just agree to work for less.

This would be a reasonable claim to make if markets were “competitive”. But no one but Apple is allowed to sell the iPods made by Foxconn (if you disregard fake stores in China), which leads to a demand curve where businesses have no reason to reduce prices when labour costs fall, because reducing prices would not increase revenues.

Once again, when businesses have no incentive to hire more because of “low consumer demand”, the only way to have full employment is for people to work less.http://pastebin.com/Wy8B0hK9

House Rs will likely block most of the above, though I’d give the payroll credit extension a greater than 50% chance. …

So I look forward to a solid rollout next month followed by a defining fight. If things come down the way I think they will, let’s make sure everyone in this country knows exactly who’s standing between the 20+ million un- and underemployed Americans, and their jobs, paychecks, and living standards.

Think this through to the logical conclusion. On one hand you have an unemployed worker, who has lost their self-esteem. On the other hand you have an employed worker angry that the government is spending “their” tax money in ways that seem to benefit only Wall Street and fin. inst.

Do you really expect the unemployed worker to want the government to spend more, so their neighbor who is employed has to pay higher taxes (or suffer inflation on their savings/fixed income)? How exactly does this cause people to feel any less like a “manipulative leech” as someone I know put it?

The alternative, once again, is for the employed worker to be ‘taxed’ (where the taxes go to their employer, not the government) only if they refuse to reduce their working hours to allow the unemployed worker a job and an income. http://pastebin.com/Wy8B0hK9

As mentioned in a previous post, there is already a strong undercurrent of opinion among the general public that people need to consume less, not more. It’s only likely to get worse if people do not agree to conserve work.

I thought the knock against reducing payroll tax was that it led to an undercapitalized Social Security system– and worsened long term projections (hence, playing into repub memes about having to kill Social Security to save it)?

The Fed has pumped a large amount of money into the banking system, but instead of expanding loans banks have allowed these funds to accumulate as reserves — about $1.5 trillion so far. We desperatel­y need for these funds to work their way into the economy where they could be creating jobs.

How can we unlock bank reserves and put that money to work?

Easy, require the mega banks to purchase a special issue of Treasury perpetual debt or consols in a total amount of say, $200 billion, a small part of the $1.5 trillion reserves they are holding. The consols are also a form of taxation, but a very mild one. Holders of consols will pay the “inflation tax” as they gradually depreciate over the years, but in the meantime they will earn 2.5%, not a bad rate in the current market, and they would be marketable so that banks could unload them at any time. Bank earnings would hardly be affected, but the government would now have $200 billion to invest in infrastruc­ture.

What would this do to the government deficit and debt burden? The answer is very little. The 2.5% interest coupon would raise government expenditur­es by a paltry $5 billion per year. Debt would increase by $200 billion, but it is debt that never matures, debt that the government can pay off at the time of its choosing, or never pay, having no effect whatsoever on the sustainabi­lity of the national debt.

Owning stock in America is a simple idea that all Americans would appreciate. Authorize the Treasury to issue $200 billion of “Build America Stock”, paying a 3% dividend and redeemable anytime at par.

The “Build America Stock” would be offered to each individual in exchange for any FDIC guaranteed bank savings deposit or CD up to a limit of $100,000. Think of the senior citizens on fixed incomes who are earning 0.5% on their 5 year bank CDs, less on bank savings deposits, sacrificing the bulk of the income previously earned on savings before the crash of 2008 because of the devastation caused by Wall Street. Wouldn’t they jump at the opportunity to earn 3% on a perfectly safe investment that can be cashed in whenever they need the funds?

Within a few short months the entire nation would benefit as the $200 billion raised by the Treasury is put to work building infrastructure. You might say, yes, but wouldn’t that take $200 billion out of the banking sytem. Don’t worry, the banks have reserves of $1.5 trillion on deposit with the Fed — they won’t miss the money.

In addition to the stimulative effect of a $200 billion infrastructure program, an issue of Treasury stock in exchange for small CDs and savings would provide an additional lift to the economy by increasing the incomes of small savers and effectively cutting the tax imposed on savers by the extremely low interest rates that followed the financial crisis.

I’d like to see the President propose a jobs program that would dovetail with the expiration of unemployment compensation benefits, in which the government would serve as the “employer-of-last-resort” and would offer a public sector job on a volunteer basis for any person losing their UI benefits. The person must be ready, willing and able to work and/or undergo job re-training. The entry level wage would nominally be set at the federal minimum wage. Those enrolled in the program would initially perform community service type jobs, but after attaining a level of competence through job re-training they could apply for private sector apprenticeships. They would continue to be paid by the government while performing their private sector job duties for a flexible trial period. If the trial period is deemed mutually successful for the worker and the private sector employer, the worker would be hired by the private company for a negotiable new wage and benefits and the worker would be released from the government jobs program. Alternatively, if the worker was not hired by the company, the worker would remain in the government jobs program until another opportunity came along.

I wish the original bill would have tied federal funding of UI to the unemployment rate. So, in other words, provide that UI will be extended until the unemployment rate returns to 7% (or whatever economists think make sense). That way Rs can’t keep getting concessions for extension of UI (which is probably why they won’t do it, but we should try, no?). Especially if the Ds are giving something big for this (like extension of Bush tax cuts – which is what they did last time), don’t extend by the week – extend until the economy recovers.

A little off topic, but good work on FAST – I’m hearing about it everywhere and it is a great program. I hope you wonky types are creating your own Brick (i.e. a phone book’s worth of ready-to-go legislation – the kind you wish would have existed when the first stimulus happened – the kind Rs always get from Heritage). If austerity is the disaster I think it will be at some point rich people might be losing money and then it will be an emergency. Then, as Milton Friedman says, the ideas that are lying around become important. We need to make sure they’re our ideas.

I’m afraid it’s more likely that D’s would propose a UI extension that is less than 99 weeks…or at least they start at 99 and are pushed to a shorter extension by R’s. This one will be tough to pass no matter what–even with unemployment so high and job creation so weak, conservatives are making supply-side arguments against an extension (i.e., UI extension, not weak demand, lengthens unemployment spellls.

Also, I know this sounds crazy, but am I right that it would be completely legal for Geitner to mint 50 $20 billion platinum coins and send them to the states?

You know an R administration wouldn’t hesitate. Ds, of course, wouldn’t dream of it even though it’s absolutely legal and economists know that, if anything, the inflation from increase to the monetary supply would be good for the economy. So, there’s something legal that would make a HUGE difference, that doesn’t require Congress, but we won’t do it because…?

I know it would be risky politically, but if it really helped I think Obama would get away with it – I really do. People are really, really hurting – 1/5 of children are in poverty, 2 million people have exhausted UI, millions have lost their homes, the real unemployment rate is ungodly high. How can you not do everything in your power?

Here’s Mike Konczal talking about it (it’s the fourth topic on the list – you can go directly to to it). I realize he’s not entirely serious (because it’s too crazy), but why? Why is this not a serious idea when we’re facing a national emergency?:

Do you know what the president is thinking regarding ‘mortgage relief’ through ‘executive action’ mentioned today in an article in the Washington Post? Also, what would you suggest for ways to provide mortgage relief.

‘Some ideas, such as providing mortgage relief for struggling homeowners, could come through executive action.’

Please just transfer money to states so they don’t have to fire half their workforces. Let’s get it through our heads that this recession has another 3 years to go at least and start planning accordingly.

Please don’t give up so easy on infrastructure Dr. Bernstein! Yes, its more capital intensive than it once was but much of that capital (machinery) is sitting idle anyway. There are plenty of good reasons to push for more spending here i.e.:

1.There are still lots of jobs (many of them good jobs) at stake as engineers, equipment operators, and skilled labor are used to put the infrastructure in place.
2. Much of the work is done by small – medium business that have been disproportionately affected by the depression. Yes, a lot of money goes into materials, but there’s still a lot of labor in moving, processing, and putting these materials in place.
3. Many of the infrastructure improvements have long lasting benefits that will accrue to a generation that will be hard pressed with other costs i.e. paying off loans to rentiers that weren’t properly taxed to begin with and paying the health care & retirement costs of the baby boomers. We need to starting thinking about providing them some relief until they can get enough political power to enact the wealth & estate taxes that will be needed to correct the mistakes and greed of their predecessors’ “representatives” and those that funded them.

With regard to the payroll tax: “…but CBO scores the employer side as having a slightly larger multiplier (their model has the employer-side cut bleeding into lower prices, which boosts real growth, etc…I’m dubious, but maybe…).”, my guess is its just another to way to transfer potential government revenues to savings of the wealthy. In a market with so much excess capacity, if P=MC=MR shouldn’t prices already be falling? But margins and profits are at record levels! Any additional reduction in employer side payroll taxes will likely just add to the monopoly profits that are currently being raked in. Its no wonder the Republican’s are in favor of this one! Its too bad the republicans with less than a couple of million in net wealth (which is most of them) can’t even see how they’re being duped into voting against their own interests.

I have zero faith that Mr. Obama’s jobs plan next month will either a) help the employment problem or b) even make a coherent argument that the government should be involved. Let’s be real for a moment, this guy is a joke. Frankly, if I were to wake up to a candyland of Keynesian stimulus tomorrow that launched unemployment down to 5% in the next year, I would still say that this President has been a colossal failure and that he probably permanently damaged the democrat brand. But he sure is “likeable.” Moving on.

Jobs plans:
1) Double time pay for overtime hours.
2) An apprenticeship program to bring recent graduates into the workforce — government employer of last resort.
3) Fix the infrastructure that needs it. (If you have to negotiate, just fix the infrastructure that is way past due for it. I believe that is still a lot).
4) Retrain: free state tuition for high demand fields — nursing, engineering, health, tech. (Zero interest accumulation on deferred student loans).
5) A manufacturing dollar.
6) Lower the entrance requirements to join the health field (Dr.’s are expensive partly because of student debt).
7) Government employer of last resort — doesn’t require building bridges, could be as simple as safety teams that are on the street to help maintain peace in high crime areas, manual labor, green energy
8) FAST
9) Energy Independence Mandate — a moon-like challenge and funding to develop American energy independence (Truly the biggest failure in the last 50 years)
10) Hire regulators: the past decades when legislation was passed but is not implemented because of funding should be rectified. Starting today.
11) Extend and mandate family leave for newborns and vacation time– like double time pay, a way to “work share” (why waste an opportunity to do something good here?)
12) tax credits for hiring now
13) work sharing
13) Tax companies that outsource
14) Employer of last resort for at least Veterans
15) An immigration and boarder protection plan that does not outsource jobs within the country, nor import foreigners when there are 25 million underemployed americans

Cash for the State
1) Financial transaction tax
2) Increase rates on capital gains — this is offensive that it hasn’t been done yet
3) Lower entry to medical field (stated already)to control costs
4) Medical Patent reform
5) Fix the tax code — one rate, 40% for all “people” including corporations. Don’t make the tax system progressive, make the benefit system progressive. Sunshine is the best disinfectant.
6) Remove federal funds from states where their representatives are working against the federal government — like Texas. If you’re against big government, then big government shouldn’t be paying you.